Mrs. Beasley's delicious business has grown richer, thanks to a new ingredient: a shrewd E-commerce strategy

Charles Bronson knew exactly what to give his friends for Christmas one year: picnic baskets filled with cookies, cakes, and breads. And the veteran tough-guy actor knew exactly where to get them: Mrs. Beasley's, the Los Angeles bakery whose impeccably presented pastries are widely considered just the ticket for Hollywood wrap parties, opening nights, and Oscar galas. At the time, Mrs. Beasley's didn't actually carry picnic baskets. But what Bronson wants, Bronson gets. So the company found some suitable straw hampers, filled them with goodies, and sent them off to everybody on Bronson's gift list.

Celebrity customer delighted. Case closed. Almost.

The incident got company CEO Ken Harris to thinking. If Charlie Bronson would buy picnic baskets, others might, too. So Harris looked around for high-quality, low-cost picnic baskets. He found them in China for $12 apiece. He bought thousands, stocked them with baked goods, priced them at $100 to $150 each, and watched as they sold briskly in the company's eight retail stores and on its Web site. "I've got Charlie to thank for that," says Harris.

That's just one example of how the CEO thinks up new ways to sell an old tradition in the form of Mrs. Beasley's handmade, attractively packaged baked goods. But he and his team go beyond simply satisfying the stars. They've created a stellar blueprint for integrating "bricks" and "clicks" businesses through dozens of strategic partnerships, superior logistics, and some surprisingly simple marketing techniques.

Over the past 20 years, Mrs. Beasley's has whipped up a loyal following as rich as the company's brownie bars. Started as a home business by two sisters in Tarzana, Calif., Mrs. Beasley's grew from a neighborhood bakeshop into a chain of stores where ordinary folk and such Los Angeles luminaries as Jodie Foster, Cher, and Earvin "Magic" Johnson spend $30 to $200 on gift baskets packed with gourmet goodies.

But even as Mrs. Beasley's expanded into upscale communities like Beverly Hills, its own fortunes remained decidedly modest. In 1990 the original owners sold the unprofitable company to a Los Angeles investment-management company. "When we bought Mrs. Beasley's, it was a $2.5-million company," Harris recalls, noting that it had taken the owners 10 years to reach that figure. "We thought we could make it a real business."

Today things are a lot sweeter for Mrs. Beasley's, which turned profitable in 1997 and reached nearly $11 million in sales in 1999. Harris expects the company to hit $17 million this year (but he's got his bakers making enough muffins and lemon cakes for $18 million -- just in case). The CEO credits much of the company's growth to its aggressive, and highly successful, expansion into E-commerce. Mrs. Beasley's Web site, launched just before the 1999 holiday shopping season, hit $2.1 million in sales in its first 60 days -- almost 20% of the pastry peddler's total sales for the year.

Harris attributes those tasty results largely to Mrs. Beasley's vigorous marketing strategy, which relies heavily on innovative affiliations -- including promotions on corporate intranets and lucrative revenue-sharing partnerships with brand-name Web sites. Now Mrs. Beasley's online business is profitable enough that Harris finds himself beginning to wish he could unload the brick-and-mortar bakeshops where the business began.

"When we bought Mrs. Beasley's, it was a $2.5-million company," CEO Ken Harris recalls, noting that it had taken the original owners 10 years to reach that figure.

The company processes all its own orders, rather than adding a third-party fulfillment company to the mix. Its Web site can handle $7 million a month in sales. It also keeps a private online address book for each customer that includes a gift-giving history. (Harris's own address book includes entries like "Crystal, Billy" and "Ryan, Meg.")

Harris, 57, whose deep, southern California tan contrasts with his tough, native New York accent, is a numbers guy, easily citing gross margin (70%) or the average cost of acquiring a new customer ($28). He readily admits that Mrs. Beasley's recipe for success hasn't come without lumps: wasted expenditures, sour deals. Even so, Mrs. Beasley's offers valuable lessons for any company that's looking to do business in multiple channels -- even those who can't count Oscar winners among their clientele.

Going into the 2000 holiday season, Harris has two wishes. First, he wants to make Mrs. Beasley's "the leading online retailer for shared gift products." The operative word: shared. Mrs. Beasley's banks on the idea that customers -- primarily businesspeople -- send gifts to their own customers who then share the bounty. "You order a gift basket, it goes around the conference table during a meeting, people try the cookies, and they're hooked," says Harris.

His other goal: Making Mrs. Beasley's a year-round habit. Currently, the company does 65% of its business in October, November, and December. (In fact, Mrs. Beasley's employees tend to talk about the Christmas season the way other people talk about natural disasters: the Blizzard of '78, the Quake of '89.)

Obviously, Harris would like to build off-season sales for other holidays: Valentine's Day, Mother's Day, even the Fourth of July. But he's far more interested in training corporate buyers -- who at holiday time spend an average of $350 per order, more than four times as much as other customers -- to think of Mrs. Beasley's whenever they need to send a positive message. Want to welcome a new account? Send a Beasley's basket. Want to acknowledge a big order? Send a Beasley's fudge cake.

According to the company's research, business gift giving is a $20-billion market, growing 12% annually. And as companies increasingly turn to the Web for shopping, Forrester Research says, the online gift market could grow to $17 billion by 2004 (compared with $1.2 billion in 1998). "We're amazed at how big that pie is," Harris says, with a straight face.

There is no Mrs. Beasley; like Betty Crocker, she's a fictional figurehead. But if there were a Mrs. Beasley, she'd be amazed at where her company seems headed, considering its humble -- by Hollywood standards -- beginnings.

The business started as a hobby. For years Nancy Fox and her sister, Lisa Blons, both of Encino, Calif., baked cakes, cookies, and muffins from recipes they had learned from both of their grandmothers. In 1980 the sisters went into business, hoping to make a living from their lifelong passion for baking. They called it Mrs. Beasley's because they felt the name embodied the perfect, homey, old-fashioned image. And they insisted on using only the highest-quality ingredients, such as Ghirardelli chocolate and Skippy peanut butter. And while banking on those traditional flavors, they also created some slightly exotic products: raspberry bars, pistachio muffins, zucchini bread.

At first they worked from Fox's home, but eventually they opened a tiny shop on Ventura Boulevard in Tarzana. Demand, fueled entirely by word of mouth, was high from the start. "Our very first Christmas was phenomenal," recalls Fox, a high-energy blonde, now a cookbook author and a consultant to Mrs. Beasley's. "We had to stop taking orders because every muffin that came out of the oven was already promised. We not only took the phone off the hook -- we had to lock the doors of the retail store."

But as Mrs. Beasley's approached its 10th anniversary, its founders realized it had grown too big to be run as a home-style business. And they found it harder and harder to balance the December demand with the negative cash flow of the other 11 months. Ultimately, they sold the business to Kayne Anderson Investment Management Inc., of Los Angeles. The firm, which has $6 billion under management, hired Harris to run Mrs. Beasley's.

At the time, taking over the tiny company seemed like an abrupt change of course for Harris. A veteran food executive, he had previously run the W.R. Grace restaurant group, which includes the Charlie Brown, El Torito, and Reubens chains, and was chief operating officer of the House of Blues chain. But then, Harris is a study in contrasts. He drives a Jaguar XK8 convertible with a vanity plate (K HARIS), but pumps his own gas. He dines at Wolfgang Puck's see-and-be-seen restaurant, Spago, where the hostess greets him by name, but prowls corporate auctions to pick up used office furniture.

In fact, frugality is an integral part of his strategy. "We treat this business as if we're spending our own money," he says. (Actually, he is spending his own money. Harris and two other executives are part owners in Mrs. Beasley's; Harris declines to reveal percentages.) So he holds overhead to 5% while monitoring the competition.

But ingredients are the one thing that Mrs. Beasley's doesn't pinch pennies on. Bakers remain faithful to Nancy Fox's original recipes, using not only her favorite brand-name products but also her labor-intensive methods. Workers hand-squeeze the lemons, for instance, for the company's Miss Grace Lemon Cakes. (Mrs. Beasley's acquired its rival, Miss Grace Lemon Cake Co., in 1995.) They hand-place M&Ms on cookies and press them in, hand-roll chocolate chunks in powdered sugar, and hand-pour glaze over brownie bars. "That's the reason these cost what they cost," Harris says, pointing to a small basket of treats that sells for $30 plus shipping.

As late as mid-1999, Harris was an Internet novice. "My only experience was ordering dog food -- and books from Amazon," he admits. But he quickly realized that Mrs. Beasley's and E-commerce went together like, well, like sugar and butter.

The Web offered an obvious new way to reach consumers. Mrs. Beasley's was already selling to companies that routinely sent gifts to 20 or 200 or even 2,000 recipients. Harris wanted to build a Web site that would make life easier for the corporate buyer ordering all those baskets.

First, Harris struck a deal with Guidance, of Marina del Rey, Calif., which had built the Web sites Footlocker.com and Rightstart.com, among others. Guidance took 12.5% equity in Mrs. Beasley's for what Guidance CEO Robert Landes unabashedly calls "a world-class Web site." In exchange for its equity stake, Guidance cut its normal $150-an-hour rate down to $60, says Landes, who, at six feet eight, looks like the Holy Cross basketball player he once was. At full price, Landes estimates, the site would have cost $1.5 million; on account of the equity deal, the price tag for the 90-day job came to $900,000. Harris expects to spend $500,000 to $750,000 annually to maintain and expand the site.

Compared with many E-commerce sites, Mrs. Beasley's is actually quite simple. The site uses just 200 SKUs, or product numbers; there's no animation; it doesn't upsell, Ã la Amazon ("Customers who bought the lemon cake also bought these products"), because Harris finds that tactic annoying. But the site is a powerful tool for overburdened buyers. They can include up to 500 recipients in a single order. They can send the same item to many different recipients: a $30 gift basket to 300 customers, for instance. Or they can send different items to different recipients: a $50 gift basket here, a $100 version there. Thanks to the personal address book, they can easily send the same gifts to the same recipients year after year (or avoid doing so). They can establish a corporate account and track orders. And they can start a big order (orders for $2,000 to $5,000 are routine during the holidays), save it online, and finish the transaction later.

But there was more to getting Mrs. Beasley's online than designing the ideal interface. As Harris puts it, "You can't be at Internet speed when the order's on its way in and at a snail's pace on the way out." And even with the Internet, customers -- especially high-spending corporate customers -- expect to get somebody on the telephone instantly when they're having problems. So Harris invested an additional $100,000 in a faster, more powerful order-processing system. He moved customer service in-house, building a 175-station call center at the factory. And he invested $50,000 in software that tracks call volume, hold time, and the number of people who hang up before being served.

Then Harris whipped up deals with many well-known Web businesses. Visitors to 1-800-Flowers.com can buy Mrs. Beasley's products; the floral site gets an undisclosed cut of revenues. A similar arrangement gives Staples a share of the sales that Mrs. Beasley's makes through Staples.com. Web sites for auto clubs, alumni and trade associations, and other groups steer members to Mrs. Beasley's. There, the members receive a 15% discount. AOL, Barnes & Noble, and other companies offer Mrs. Beasley's products to their employees at a 15% discount through corporate intranets (with intranet-management businesses like Abilizer.com taking a 5% share of each sale). Such arrangements account for 22% of the company's overall sales, almost double the 13% handled directly through its own Web site. (Remaining revenues come from catalog, retail, and wholesale business.)

Mrs. Beasley's stays in touch not just with the people who have bought its gift baskets but also with those who have received them. Thanks largely to those follow-up efforts, such as E-mail marketing campaigns that cost less than $4 per 1,000 messages sent, about 8% of gift recipients later become customers.

All the company's E-commerce strategies paid off in the 1999 holiday season, when the company's sales reached $7 million, up 25% over 1998 revenues. Thirteen percent of the people who visited Mrsbeasleys.com spent money there. (At many sites, only 2% of visitors actually make a purchase, according to Forrester Research.) And although many online shoppers complained that other gift sites sent the wrong items or missed delivery dates last holiday season, Mrs. Beasley's claims that it delivered 99.8% of its orders correctly and on time.

Despite its astonishing first season online, Mrs. Beasley's stumbled a few times. Last year the company spent $30,000 for banner ads on the Blue Mountain Arts greeting-card site. "I think we made $923," Harris says wryly, referring to total sales from that campaign. Lesson learned: Don't pay for placement. These days Mrs. Beasley's sticks mostly to revenue-sharing agreements.

And then there are the brick-and-mortar shops. "I built four retail stores in '97 and '98. Knowing what I know now, I wouldn't have spent the capital," Harris says. That's because the return the company will get from those stores is nowhere near what it will get from the Internet. (Retail-store sales rose 15% this year, while Internet sales rose more than 1,000%.)

Meanwhile, out at Mrs. Beasley's 55,000-square-foot factory and warehouse in Carson, things are gearing up for a holiday season that could make last year's look like a dress rehearsal. An off-season staff of about 50 will swell to 350, working three shifts to bake, pack, and ship an almost unimaginable number of muffins, cookies, and brownies. During the slow summer months the company might make 100 lemon cakes daily. In November they increase output dramatically, "kicking out 3,000 cakes a day," says bakery director Jeff Beasley, who will hold the factory team to a rigid production schedule. "We plan the living hell out of it," Harris says. "In the month of December, it all pays off."

For a company with less than $20 million in revenues, Mrs. Beasley's has paired up with some pretty major partners. Here's a sampling of Mrs. B's deals:

Revenue sharing with 1-800-Flowers.com. The online florist promotes Mrs. Beasley's products in exchange for an undisclosed percentage of sales made through its site. Average monthly sales January through September: $81,000; average monthly holiday sales: $250,000.

Revenue sharing with Staples.com. In exchange for an undisclosed percentage of sales, the office-supply company will promote Mrs. Beasley's sweets through E-mail to one million of its customers and will offer Mrs. B's pastries on its site. CEO Ken Harris expects sales from the deal (which at press time was planned to begin this month) to exceed those from the 1-800-Flowers.com promotion.

Discounts for AAA members. Mrs. Beasley's offers members of regional AAA clubs a 15% discount for purchases made in stores, by phone, or online. What does AAA get out of the deal? "Zilch," says Ken Harris. "At least financially. It's another benefit for them to offer members." Average monthly sales January through September: $9,300; average monthly holiday sales: $40,000.

Discounts on corporate intranets. Mrs. Beasley's partners with companies that run employee-benefits intranets at AOL, McDonald's, Raytheon, and many other large companies. Employees receive a 15% discount on Mrs. Beasley's products that they order from the intranets, while the intranet developers take 5% of sales made through their sites. Average monthly sales: $10,000.